This study examines whether opportunistic and partisan business cycles influence fiscal policy in 54 developing countries when controlling for de facto exchange rate regimes and capital mobility. With most exchange rate regimes, leftist parties are more likely to engage in expansionary fiscal policy, but are less likely to do so as capital mobility rises. With a rigidly fixed rate, however, leftist parties engage in more fiscal expansion with higher capital mobility. Unless an exchange rate is ... (more info)

This study examines whether opportunistic and partisan business cycles influence fiscal policy in 54 developing countries when controlling for de facto exchange rate regimes and capital mobility. With most exchange rate regimes, leftist parties are more likely to engage in expansionary fiscal policy, but are less likely to do so as capital mobility rises. With a rigidly fixed rate, however, leftist parties engage in more fiscal expansion with higher capital mobility. Unless an exchange rate is freely falling, an election is more likely to encourage fiscal expansion when capital mobility is high.

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